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COMPANY OF THE DAY : CHINA TELECOM

China Telecom reported a steady improvement in August, as it gained about 1.8 million new 3G subscribers. This marked the sixth consecutive month of improvement in 3G user adds for the carrier, and the first time this year that China Telecom recorded more monthly high speed user adds than China Unicom. In a recent note we discuss these results as well as our outlook for the company going forward.

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FORECAST OF THE DAY : VERIZON'S U.S. WIRELESS MARKET SHARE

According to a recent report by RootMetrics, Verizon's wireless network remains the best in the U.S. in terms of network speed, network reliability, call performance and data performance. The company's upgraded XLTE network allowed it to build a significant lead in terms of speed. We expect the carrier's network advantage to allow it to defend its market share amid increasing price competition from smaller rivals.

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Revising Yahoo’s Price To $41.53.
  • by , yesterday
  • tags: YHOO AOL GOOG
  • Yahoo! ’s (NASDAQ:YHOO) core business is lagging despite numerous website and product refreshes. However, the stock has performed exceedingly well over the past three months as the price has soared from $33 to $41 post the the listing of Alibaba’s American depository receipts (ADR), through which it raised close to $25 billion. While we estimate that each ADR of Alibaba is worth $80, it continues to trade near $90 level. Post our valuation of Alibaba’s ADR, we have revised our stock price estimate for Yahoo! from $34.38 to $41.53. In this note, we will discuss our valuation for the company. Click here to see our complete analysis of Yahoo! Majority of Value in Non-Operating Segments According to our estimates, nearly 74% of Yahoo!’s value comes from non-operating segments, which constitute of the company’s stake in Alibaba and Yahoo! Japan, as well as cash. Below is the overview of these non-operating segments: Yahoo!’s Stake in Alibaba: Post the ADR listing, Yahoo!’s stake in Alibaba has declined to 16.3% or 383.57 million shares. While we value this stake at $19.5 billion post tax (i.e., $80 per ADR), Alibaba still makes up nearly 47% of Yahoo!’s estimated value. Considering the market sentiments surrounding Alibaba, the value of Yahoo’s stock can be significantly higher if Alibaba’s valuation were to increase in the coming months. Yahoo!’s Stake in Yahoo!Japan : We estimate Yahoo! Japan’s valuation to be near $23 billion and Yahoo! has nearly 35% stake in it. Based on this estimate, Yahoo!’s stake in Yahoo! Japan is worth $5.92 billion after taxes. As a result, Yahoo! Japan makes up nearly 14% of Yahoo!’s value. Cash Position Boosted Post IPO: At the end of Q2, Yahoo! had over $2.74 billion in cash and short-term marketable securities. The company’s cash position increased by $5.9 billion (post 38% tax payment on $9.52 billion) due to sale of 140 million shares in Alibaba’s listing. While we expect Yahoo! to return 50% of the cash from IPO proceeds to shareholders, the company will continue to hold on to remaining $2.95 billion that can be deployed either for acquisition or researching and developing new products. Yahoo!’s Core Business The company owns various popular properties such as Yahoo! Mail, Yahoo! Sports and Yahoo! Finance;  And it had approximately 800 million monthly unique visitors worldwide in 2013. Overall, Yahoo! is ranked among the top 5 Internet sites, both globally and in the U.S., and is used by approximately 20% of the worlds Internet users on a daily basis. We believe Yahoo!’s core business to be worth $10.9 billion based on the fact that it generates over $1 billion in cash annually. These divisions make up nearly 25% of Yahoo!’s estimated value. Our take on its core area of operations is as follows: Display Advertisement Is Biggest Operating Segment According to our estimates, Yahoo!’s display advertising segment is its biggest operating segment, making up for around 10.5% of the company’s total value. The key metrics for this is revenues per pageview (RPM). While the number of display ads sold across Yahoo! properties rose over the past two years, the price per ad declined due to unfavorable shift in mix from premium ads to low cost ads.  As a result, RPM declined from $1.53 in 2010 to $1.10 in 2013. Even though the company continues to roll out premium display content, it is yet to be fancied by advertisers who continue to spend less across Yahoo! properties. Furthermore, we expect the international mix of total display ads to increase that can drag ad prices down. Going forward, we expect revenue per impression to remain flat, but do think that opportunities exist for Yahoo! to drive growth. For example, the company is trying to address the decline in its display ads revenues by developing and delivering bespoke content across its mobile platform. By doing so, Yahoo! has been trying to boost user engagement and increase unique user count. Better content and user engagement can increase the time spent on the website and advertisers are willing to pay higher revenue per impression for these sites. Yahoo! is ranked third in terms of time spent by a user on the website. Currently, we project RPM for Yahoo! to remain flat at $1.10 per 1,000 impressions. However, we estimate display ads revenues to grow to $1.9 billion by 2021 due to increase in the number of ads sold across both desktop and mobiles. Search Advertising To Grow, Albeit At A Slower Pace While display advertisements constitute the majority of the company’s operating value, search advertising also contributes around 10.2% of total value. Despite a deal with Microsoft in 2009, when Microsoft agreed to power Yahoo! Search and search ads, Yahoo!’s search ads revenues declined from $1.8 billion in 2009 to $1.47 billion in 2011. However, over the past two years, revenue has increased marginally to $1.6 billion in 2012 and $1.7 billion in 2013. This growth has primarily been due to overall improvement in online search ads. While the search ads revenues in the U.S. grew by over 9% in 2012-2013 period from $16.9 billion to $18.4 billion, growth in Yahoo!’s search ads lagged the industry as over all search revenues grew by 5.5%. To combat this, the company decided to build a robust mobile platform by acquiring smaller companies. As a result, Yahoo! reported growth in its total mobile unique visitors, which grew to over 450 million in the second quarter. The growth in its unique visitor count is important for Yahoo! as a bigger user base will consume more content across the company’s websites. This in turn, will translate into higher pageviews and searches across all Yahoo! platforms, and thus improve revenue across search ad divisions. While we estimate that Yahoo!’s search ads revenue will increase to $1.9 billion by 2021, it will continue to loose market share to incumbent i.e. Google. Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research  
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    Walgreen Reports Strong Topline Growth But Pharmacy Margin Pressure Remains
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  • tags: WAG RAD CVS
  • The largest drugstore chain in the U.S., Walgreen (NYSE:WAG) reported its Q4 2014 earnings on September 30. With net sales of $19.1 billion in Q4 2014 (a 6.2% annual increase), Walgreen continued to see growth in its daily living business and prescription volumes, which resulted in the largest quarterly and fiscal year sales increases in three years. As pointed out by us in our pre-earnings article, the gross margin remained under pressure, due to an anticipated decline in reimbursement rates and lower profitability from generic drugs. Though Walgreen reported a net loss 0f $0.25 per share, its adjusted earnings per diluted share ($0.74) came in 1.4% higher compared to Q4 2013. GAAP results were negatively impacted by $0.90 per diluted share non-cash loss related to the amendment and exercise of Walgreen’s Alliance Boots call option, which had no immediate tax benefit. Overall, the earnings were in-line with market expectations, while revenue slightly beat the market consensus.   For the 39th consecutive year, Walgreen increased its dividend, this time by 7.1% to $0.3375 per share. While Walgreen remains confident of seeing a continuing growth in its top line, it believes that the margin pressure will persist in the short-term. A cautious consumer, ongoing reimbursement pressure, generic drug inflation and significant step-downs from Med D reimbursement rates, are some of the factors that will act as headwinds in fiscal 2015. Nevertheless, Walgreen believes that it is well-positioned to capitalize on the industry tailwinds, which include an aging population,  growth in chronic conditions, the consumerization of healthcare, continuing increases new generics and growing demand for a personalized experience. Our price estimate of $64 for Walgreens is slightly above the current price estimate. We are in the process of updating our earnings for the recent earnings release. View our analysis for Walgreens Walgreen Gains Share In The Retail Pharmacy Market Walgreen revealed in its Q4 2014 earning call that its retail pharmacy market share grew 30 basis points (to 19%) in fiscal 2014, as it filled a record 856 million prescriptions. It filled 211 million prescriptions in Q4 2014, 4.2% higher compared to the same period last year. According to IMS, Walgreen grew script 60 basis points faster than the retail industry in Q4 2014. It expects to continue to increase its pharmacy volume and share with high-value customers through growth in Med D, its enterprise specialty business and immunizations. Since 2013, Walgreen claims that its prescription share with Med Part D seniors has grown more than twice as fast as the overall retail prescription share. On an average, Med D seniors fill three time more prescriptions compared to the company’s non-Med D customers. Walgreen is confident of increasing its share further in subsequent quarters, driven by a continued focus on winning high value seniors through preferred relationships with Medicare Part D plans. Walgreen also intends to increase it share in the  specialty market by improving and integrating care for patients with complex chronic disease states. As of August 2014 end, it had access to over 100 limited distribution drugs by manufacturers, which the company believes symbolizes the manufacturers desire to work with Walgreen’s unique specialty network of health system pharmacies, its complex therapy pharmacies and fusion pharmacies and its specialty  retail offering. A new report released by CVS Health (NYSE:CVS) in November 2013 projects that specialty drug spending will more than quadruple by 2020, crossing $400 billion a year. Expanding its presence in the specialty sector will help increase Walgreen’s share in the overall pharmacy market, in our view. Unfavorable Industry Trends Continue To Put Pressure On Pharmacy Gross Margins Walgreen’s adjusted gross margin declined to 27.9% in Q4 2014, as compared to 28.9% in Q4 2013. While margins continued to grow at the front-end, its pharmacy gross margins were pressured by: 1) higher third party reimbursement pressure; 2) increased Medicare Part D in the  business mix (including Walgreen’s strategy to continue driving 90-day prescriptions at retail); 3) pronounced generic drug inflation on a subset of generic drugs; and, 4)  the mix of specialty drugs. The increased rate of introductions of new generics in Q4 2014 and purchasing synergies in the pharmacy did offset the decline in pharmacy gross margin to some extent. Walgreen claims that, in the last year, the market has shifted from historical patterns of deflation in generic drug costs into inflation, a trend that is negatively impacting margins. The company has witnessed higher costs for a subset of generic drugs and in some cases the increase has been significant. The average inflation in its basket of generic drugs is mid-single digit as measured on a comparable drug priced basis. Walgreen believes that generic drugs inflation will continue to negatively impact gross margins in the near term. Walgreen is working to minimize the impact of inflation by tracking the movement of AWP, working with market participants to help them understand the importance of appropriate AWP adjustments to represent changes in actual drug costs, evolving its payer contracts to reflect the realities of an inflationary versus a deflationary market, and working through its joint venture with AmerisourceBergen (ABC) to secure better costs. Walgreen expects to achieve $1 billion in cost reductions over three years by incorporating savings at the corporate field and store levels. It has put headquarters and non-labor spending reductions into immediate effect and continues to work toward greater efficiencies in its processes through Walgreens lien Six Sigma. It expects to begin realizing incremental cost benefits in fiscal 2015. Fiscal 2015 Outlook - Capex of $1.7 billion. - Adjusted tax rate between 29% to 30%. - Share count of approximately $1.1 billion. View Interactive Institutional Research (Powered by Trefis): Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research
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    The Positive Side Of Split Between eBay And PayPal
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  • tags: EBAY BABA AMZN
  • After long resisting such a move,  eBay (NASDAQ:EBAY) has finally decided to spin-off its payment services arm PayPal. This spin off will be completed in 2015. While there may be some negatives to consider — such as loss of synergy between eBay and Paypal, spin-off related expenses and the impression that eBay’s reluctance and subsequent decision to split indicates slight incompetence on the part of its management — there are some positives too. With this spin-off, PayPal will become more nimble and focused, which is necessary given the recent innovations in payment processing industry. Additionally, eBay will have more cash to fund its own operations instead of fueling PayPal’s growth. Last, but not the least, investors are likely to benefit from capital gains as a spin off is usually a tax-free transaction and could unlock hidden value by increasing transparency. Our price estimate for eBay stands at $67, implying a premium of little under 20% to the market.
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    Value-added Businesses To Boost Alcoa's Q3 Results
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  • tags: AA X MT
  • Alcoa (NYSE:AA) will report its third quarter results and conduct a conference call with analysts on October 8. We expect the company’s increasing emphasis on its high-margin value-added products to positively affect its results. In addition, the recent resurgence in aluminum prices will also positively impact the fortunes of the company’s upstream primary aluminum and alumina businesses . The company has steadily shifted its product portfolio towards value-added products, in order to reduce its dependence on aluminum prices, which experienced an extended period of weakness over the past several quarters. The company’s value-added products enjoy pricing premiums and higher margins as compared to its upstream businesses. The benefit of such a strategy is likely to be reflected in its results. See our complete analysis for Alcoa Aluminum Pricing Aluminum has diverse applications in industry. It is an important input in the packaging, aerospace, automotive, construction, commercial transportation, power generation, capital goods and consumer durables industries. Thus, demand for aluminum is broadly correlated with industrial growth. The European debt crisis and slowing Chinese growth have contributed to the weakness in aluminum demand, and consequently prices over the last few quarters. On the supply side, production capacity was not reduced corresponding to the subdued demand conditions over the last few quarters. Persistently high aluminum inventory levels relative to demand have kept London Metal Exchange (LME) aluminum prices depressed. This inventory was built up partially as a result of aluminum being tied up in financing deals, which were made possible due to low interest rates. Despite inventories being at a record high, market forces failed to rationalize supply through the shutdown of smelting capacity. Though global aluminum majors like Alcoa and Rusal did make significant smelting capacity cuts, the same was not true of Chinese companies. This was primarily due to state intervention in the form of provision of subsidies or renegotiated power contracts to smelters, which serve as a disincentive to cut production. China accounted for around 45% of the world’s aluminum production in 2013, and the expansion in production by Chinese producers more than made up for capacity cuts by global majors.  This oversupply situation kept aluminum prices depressed over the last few quarters. This also prompted Alcoa to shift its product portfolio towards value-added products, in order to reduce its reliance on aluminum prices. However, aluminum prices have rebounded recently. Global smelting capacity cuts in response to low prices have finally taken effect. LME warehouse stocks of aluminum were down around 10% in July, since the start of the year. In view of the global smelting capacity cuts, as per a poll conducted by Reuters in July, the market for aluminum is expected to move from an oversupply of 235,500 tons in 2014 to a deficit of 4,444 tons in 2015. However, global smelting capacity restarts in response to higher aluminum prices are expected to lower or eliminate the extent of the deficit next year. In any case, the tightening of the physical supply of aluminum has led to a recent rally in aluminum prices. LME aluminum prices averaged roughly $1,800 per ton over the course of the third quarter in 2013. These prices have averaged close to $2,000 per ton in the third quarter this year. Higher aluminum prices are likely to translate into better results for the company’s Primary Aluminum and Alumina business segments. Alcoa’s Strategic Shift Towards Value-added Products The Global Rolled Products (GRP) and the Engineered Products and Solutions (EPS) divisions constitute Alcoa’s value-added business segments. The GRP segment is mainly involved in the production and sale of aluminum plate, sheet and specialty foil. This segment’s products are sold to customers in packaging and consumer goods, aerospace, automotive, brazing, building and construction industries. The EPS segment’s products include titanium, aluminum and superalloy investment castings, fasteners, aluminum wheels, integrated aluminum structural systems, architectural extrusions, forgings and hard alloy extrusions. These products are sold to customers in the aerospace, automotive, building and construction, commercial transportation and power generation industries. The fortunes of the upstream segment are to a large extent dependent on aluminum prices. To decouple itself from its dependence on aluminum prices, the company has shifted its focus towards value-added products. Alcoa’s shift towards value-added products is reflected in its revenue figures. The percentage contribution of the GRP and the EPS segments sales to the total revenues has steadily increased. This figure stood at 52.1%, 54.4%, 55.7% and 58% at the end of 2011, 2012, 2013 and Q2 2014, respectively. In calculating these figures, we have only considered third-party sales. The company’s value-added products accounted for 72% of its total segment after-tax operating income in the first half of 2014. Recent Developments Alcoa has bet big on the aerospace segment in its continued portfolio transformation towards value added products. In Q3 2014 alone, several major developments in the aerospace segment have taken place. These include the signing of a 10-year agreement worth $1.1 billion to supply jet engine components to jet engine manufacturer Pratt & Whitney, a division of United Technologies Corporation. Alcoa also announced the signing of a long-term contract worth $1 billion to supply aluminum sheet and plate products to Boeing. In addition to these developments in the aerospace sector, the company also announced that it will launch its lightest heavy-duty truck wheel in Europe in 2015. The company also announced its intention to permanently close its Portovesme primary aluminum smelter in Italy, in order to reduce its high-cost smelting capacity. All these developments will translate into a growing share of value-added businesses in Alcoa’s revenue and profit figures in the coming years. Expectations from the Earnings Call In view of the company’s ongoing portfolio transformation, we would like to know from the company management, what the flurry of activity in the company’s value-added business segments would translate into in terms of revenue. Going forward, the impact of these value-added products on margins would also be of interest to us. It would help us understand how far the company is able to insulate itself from swings in aluminum prices. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research    
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    Chinese Internet Firms Turn To Crowd-funding
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  • tags: BIDU RENN
  • Chinese Internet company Renren (NASDAQ: RENN) recently invested in the Washington based startup, Fundrise. This was a part of the $31 million financing that Fundrise raised. Fundrise is into crowd-funding real estate development. Crowd-funding helps retail investors make small investments in projects of their choice, such as real-estate development and movie making. These are pooled together to actually fund the venture. Thus, small-time investors get exposure to investment opportunities that would otherwise be available only to large investment funds or high-net-worth individuals. Crowd-funding has recently caught the fancy of other Chinese Internet companies as well. In this article we take stock of their experiments with this business model. How Fundrise Raised Funds From Renren Renren had earlier invested in Social Finance(SoFi), a venture that seeks to eliminate banks and other intermediaries from student loans. SoFi connects students in need of loans with individuals wiling to lend to them, such as alumni of the same university. Pooling of funds occurs with respect to each school/university. So this is considered peer-to-peer financing as there is virtually no intermediary involved. Renren founder and CEO Joseph Chen was enthused about investing in ventures that extend similar models to other sectors. One such sector with considerable intermediary presence is real-estate. See our complete analysis of Renren here Fundrise is the pioneer in crowd-funding real estate projects in the U.S. Since its founding three years ago, this sector has seen many such companies start-up. The investment in Fundrise gives the Renren founder and CEO a seat on its board. Fundrise claims it is also benefiting from Renren’s expertise in online marketing, social networking and programming. With this support, Fundrise is looking to expand its operations in the top 10 metros of the U.S., which they claim represents 80% of the large real estate project market. The capital raised from retail investors will be channeled to two types of construction projects. On the one hand there will be well-established developers with a proven track record. On the other hand will be developers at the other end of the spectrum, who are relatively new and involved in smaller projects (less than $10 million). Alibaba Looks To Crowd-fund Movies In March, Alibaba (NYSE: BABA) announced that it would crowd-fund movies in China. It launched a company called Yu Le Bao, Chinese for Entertainment Treasure. It helps retail investors make investments in a movie of their choice for as small a sum as $16. The company said it would take feedback from investors regarding the plot and casting of these movies as well. Investors have been told by the company to expect returns as high as 7% from such investments. See our complete analysis for Alibaba Alibaba is seeking to raise ~$12 million for a first batch of four projects. The money will, however, initially be invested in the wealth management products offered by Shanghai based Guohua Life Insurance. They will later be channeled into the intended ventures. Unlike crowd-funding in the west, this particular scheme will not reward investors with goods or services associated with the projects. This is said to be on account of Government Regulations discouraging such features in China. Baidu Follows Alibaba’s Lead Baidu (NASDAQ: BIDU) has made its own foray into crowd-funding movies. It launched a website called Baifa Youxi, in association with Taiwan’s Central Picture Corporation, Citic Bank and DeHeng law firm in Hong Kong. Baidu has suggested that returns from such investments could be as high as 16% for the retail investors, higher than that estimated by Alibaba for its scheme.  The return to the investors will be linked with the box-office performance of the movies they invest in. One such movie, titled G olden Age, has raised $29.3 million from about 3,300 followers. This is 20% more than the estimated budget of the movie, which stars two of China’s leading actors. Movie industry analysts in China believe crowd-funding will help gauge consumer interests better, since the investors are also drawn from the larger audience. Internet companies also have the added advantage of having competency in online marketing and social networking to promote these movies. Such ventures also help continue the diversification away from their core areas that Chinese Internet firms are increasingly seeking. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap |  More Trefis Research
    Introducing Big Brother’s Secret Weapon
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  • tags: AVAV LMT
  • Submitted by Wall St. Daily as part of our contributors program Introducing Big Brother’s Secret Weapon By Robert Williams, Founder   The FBI just launched its new tracking system, which relies on facial recognition software. By next year, the database is expected to house 51 million photographs. It constitutes big news on two fronts . . . First, there’s a chance that your photograph is in the FBI’s database. Second, although Lockheed Martin ( LMT ) powers this soon-to-be ubiquitous technology, the real opportunity lies elsewhere . . .  That is, in the company providing Lockheed with the secret algorithm. Next Generation Identification: The FBI’s Shiny New Toy… Conventional wisdom suggests that the FBI would rely solely on post-arrest mug shots and video feeds from security cameras to fill its national database. As I see it, law-abiding citizens have earned an exemption from appearing on the list alongside criminals, right? Well, the FBI doesn’t see it that way. It’s taking a much more ambitious approach. Along with mug shots and surveillance cams, the FBI will also upload the photos obtained from the background checks it conducts for private sector and government job candidates. The FBI made assurances that the facial recognition system isn’t connected to the internet or social networks, or your local Department of Motor Vehicles… but I suspect it’s only a matter of time before such measures are fair game. It’s all part of a comprehensive rollout of what’s being called the “ Next Generation Identification ” (NGI) system. It’s a $1.2-billion project that uses state-of-the-art biometric technology to boost America’s national security and law enforcement capabilities. Building on the Integrated Automated Fingerprint Identification System (IAFIS), NGI includes a host of new biometric identifiers – facial recognition, voice recognition, iris scans, palm print identification, photos, and even DNA profiles. In short, it’ll be the world’s biggest biometric database – with the information easily available to both federal and state law enforcement bodies. The database won’t just benefit the Feds, either, as police around the country will also have access. If You Hate Big Brother . . . Then NGI is your mortal enemy. You see, with 30 million surveillance cameras in the United States, the system could tap into the cameras, using facial recognition to hold both criminals’ and non-criminals’ details. In fact, you probably won’t have a clue if your details are being captured for the system. Needless to say, privacy advocates are concerned about the ability to randomly track and collect data on innocent folks. But the system will allow the FBI and police alike to identify people much easier and quicker – from serious crimes to routine traffic stops. Indeed, during an arrest, the waiting time to identify the perpetrator will be slashed from two hours using the old system to a mere 10 minutes. And employers using it for background checks will no longer have to wait 24 hours… results will be available in just 15 minutes. The Backdoor Route Into a Booming Industry… Defense contractor, Lockheed Martin, designed the FBI’s NGI system in a deal worth upwards of a billion dollars. That being said, the company needed a lot of help getting the system off the ground. The help largely came via MorphoTrak, a U.S.-based subsidiary of the French defense giant, Safran SA ( SAF.PA ). MorphoTrak’s technology already powers biometric scans at 450 U.S. airports and DMVs in 42 states. And its biometric matching algorithms are ranked No. 1 by NIST (National Institute of Standards and Technology) for latent fingerprint matching accuracy. The parent company, Safran, has its hand in everything – from building the landing gear, wheels, brakes, and ventilation systems for aircraft . . .   to manufacturing the propulsion systems for drones. But I believe that its booming biometric security segment – which is increasingly relying on facial recognition technology – is big enough to push the stock higher. Both Lockheed Martin and Boeing ( BA ) carry price-to-earnings ratios around 19. Safran’s is only 13, yet it’s making serious forays into an industry that I regard as having much more growth potential. Since Safran trades on an intentional exchange, you won’t be able to execute the trade over the internet. But just give your broker a call and you shouldn’t have any problem entering a position. Buy on the dips. Onward and Upward, Robert Williams Founder, Wall Street Daily   The post Introducing Big Brother’s Secret Weapon appeared first on Wall Street Daily . By Robert Williams
    12 Cheapest Stock Of The Dividend Aristocrats Index
  • by , yesterday
  • tags: VYM XOM T MDT
  • Submitted by Dividend Yield as part of our contributors program . 12 Cheapest Stock Of The Dividend Aristocrats Index Today I’ve attached a list of the yields from the Dividend Aristocrats for you. You can also find the payout ratios in this table. It’s very informative in my view and I use this overview too in order to get a feeling about the pricing of the market. Dividend Aristocrats are stocks that have increased dividend payments over a period of 25 consecutive years without a break. That’s a top value and around 100+companies could achieve this goal. Standard & Poor’s increases the restrictions and cut the list to 42 members. Well not all stocks are good from the list but you can find there some value player. Just take a look! You may also like: 6 Cheap Dividend Aristocrats With High Growth Predicted Only 12 companies yield over 3 percent. Not bad for a low interest environment. The bond market offers 1.56 percent and has also default risks. The top yielding stocks also slow grower full of debt. These are my main thoughts to the Dividend Aristocrats list: - When we look at the highest yielding stocks with yields over 3 percent, we see that only 3 companies have a low forward P/E. - Stocks with a lower yield are much cheaper. 9 companies with yields less than 2 percent have a forward P/E under 15. - Low yielding stocks pay out less of it’s annual earnings and might be reinvest more money into growth. - See more of the results and the 12 cheapest Dividend Aristocrats here: Yields Of The Dividend Aristocrats…
    The Flight Back Down to Reality Ahead for the Rich
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  • tags: SPY TLT
  • Submitted by Profit Confidential as part of our   contributors program The Flight Back Down to Reality Ahead for the Rich Six years ago this month, in the midst of the Great Recession, Lehman Brothers, one of the most well-known investment banks in the U.S. economy, filed for bankruptcy. At the time, Lehman’s bankruptcy sparked widespread worries . . . and the U.S. financial system teetered on the verge of collapse. For those of us who remember that time, there was too much uncertainty. So, the Federal Reserve and the government stepped in to help the crumbling U.S. economy. Loans were made to companies that were “too big to fail,” interest rates fell to historic lows, and trillions of dollars in new money was printed (out of thin air). Six years later, is the U.S. economy better off now? Looking at Wall Street today, it looks like things couldn’t be better. The markets are close to all-time highs. The big banks are in better shape; their profits are rising and executives’ incomes and bonuses are big once again. And speculation is back, big-time. As just one example, Facebook, Inc. (NASDAQ/FB) recently reached a market capitalization of more than $200 billion in hopes that the company will be able to make more money on mobile ads. Facebook is trading at a price-to-earnings multiple of 100! The luxury market is hot again. Exotic cars are being sold at record prices. Sales of million-dollar-plus mansions are on the rise. Sadly, on the other side of the coin, there have never been so many poor people in the U.S. economy, and the middle class hasn’t seen a return to the wealth and income they had before the Credit Crisis. In 2013, 14.5% of the U.S. population was living at or below the poverty line. In 2008, this rate was 12.5%. (Source: U.S. Census Bureau, September 16, 2014.) In June of 2014, there were 46.4 million Americans in the U.S. economy who were using food stamps. In 2008, there were only 28.2 million Americans using food stamps—a jump of more than 64%. (Source: U.S. Department of Agriculture web site, last accessed September 18, 2014.) When it comes to the jobs market, there isn’t much to be excited about either. Well-paying jobs are hard to come by in the U.S. economy. The “job boom” has been in low-wage retail jobs. The underemployment rate, which includes those people who have given up on looking for work and those people who have part-time jobs because they can’t find full-time jobs, has been above 12% for years now. Dear reader, while I can list many other problems with the U.S. economy, the point here is that since the collapse of Lehman, only the well-to-do, the rich, have rebounded and even flourished. The Fed’s policy of keeping interest rates so low for so long has benefited those who have been able to borrow money at historically low rates while investing the money in assets that are appreciating, like stocks. But this might soon change. The stock market has taken the shape of a huge bubble. And some of the air in that bubble started to leak out this week as stocks had three sharp days of losses. When the stock market bubble does burst, and it will, those who have benefited from the Fed’s low-interest-rate policy (NYSE margin debt is at a record-high) will come back down to reality very quickly.   The post The Flight Back Down to Reality Ahead for the Rich appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
    Why These “Payroll” Stocks Look Interesting Now
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  • tags: SPY PAYX ADP
  • Submitted by Profit Confidential as part of our   contributors program Why These “Payroll” Stocks Look Interesting Now Very soon we’re going to hear the earnings news straight from the horse’s mouth. Quarterly earnings are beginning to trickle in and even if you aren’t interested in the stocks that you don’t own, corporate reporting is the most important market intelligence you can review. For years, Paychex, Inc. (PAYX) was one of those companies that continually reported great financial results. It was a growth stock during the technology bubble in the late 1990s, and it made a lot of money for shareholders. The company hit a wall in terms of its double-digit growth shortly after the technology bubble burst, but what this payroll and benefits outsourcing company has to say about its business conditions is still material to equity investors today. Recently, Paychex beat the Street by a penny and reported revenue growth in-line with Wall Street consensus. The company’s first fiscal quarter of 2015 (ended August 31, 2014), saw its total sales grow nine percent to $667 million, with particular strength in human resources services revenues, which grew 17% comparatively to $244 million during the quarter. Earnings grew five percent to $171 million (which is very strong profitability per dollar of sales). Earnings per share rose seven percent to $0.47. Company management recently repurchased 900,000 shares for cancellation during its first fiscal quarter for a modest expenditure of $37.5 million. The company finished the quarter with cash and total corporate investments of $956 million with no debt. In July, Paychex increased its quarterly dividend nine percent to $0.38 per share. Overall, it was a pretty good quarter for this mature enterprise. Earnings for its upcoming quarter are expected to grow between six percent and eight percent, with total service revenues expected to be eight percent to 10% greater than the same quarter last year. The other big company in payroll and benefits administration is Automatic Data Processing, Inc. (ADP), which has been doing incredibly well on the stock market since the beginning of last year. (See “ How to Create a Winning Portfolio in a Market at Its Highs .”) ADP doesn’t report until the end of October, but its top-line growth should be similar to Paychex’s. ADP has been a good earner for shareholders of late and the stock is still yielding approximately 2.4%. Similarly priced to Paychex in terms of its valuation, I suspect ADP will be able to keep ticking higher on the stock market going into 2015. The stock would be attractive for new buyers depending on how the company reports its fiscal first quarter of 2015 before the market opens on October 29, 2014. This stock has doubled since 2010, as institutional investors bet on the economic recovery. ADP reported revenue growth of 10% to $3.1 billion in its fourth fiscal quarter of 2014. The company’s earnings were $289 million, or $0.60 per diluted share, compared to $224 million, or $0.47 per diluted share. Management expects fiscal 2015 total revenue growth of between seven percent and eight percent. Paychex’s latest numbers were solid and they bode well for ADP. The company’s share price has been in consolidation all year and its latest numbers will likely be the catalyst for a breakout.     The post Why These “Payroll” Stocks Look Interesting Now appeared first on Stock Market Advice | Investment Newsletters – Profit Confidential .
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    MGM To Benefit Post An August Gaming Decline As Outlook Still Remains Positive
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  • tags: MGM LVS WYNN
  • After five months of gaming growth, Nevada witnessed a 4% drop in gaming revenues for August. Revenues at the Las Vegas Strip dropped by more than 6% to $553 million. However, it must be noted that the Strip witnessed a 20% jump in revenues in the prior year period amid an unusual higher baccarat hold of 18.92%. The money being wagered on Baccarat continued its uptrend and grew 2.4% for the month. This will benefit casino operators such as  MGM Resorts (NYSE:MGM), who have a significant presence at the Strip. The casino operators have been trying to attract more Asian high rollers, who prefer baccarat to other casino games, and the growth of baccarat is helping the company grow. Going forward, the economic recovery and higher consumer spending will only make things better for the casino operators at the Strip. Total value of MGM’s Las Vegas table games money wagers was $4.2 billion in 2013. The reported win percentage of 20.5% translates into revenues of $861 million for the year. The estimated EBITDA margin of 14% for the company’s Las Vegas casino operations translates into EBITDA of $123 million, representing 7% of MGM’s overall EBITDA for 2013. The U.S. casino table games contribute more than 6% to MGM Resort’s stock value, according to our estimates.
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    Here's Why We Believe Cree Is Still Worth $58
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  • tags: CREE TGOSY EPIS AGVO
  • Despite reporting strong earnings growth this year,  Cree’s (NASDAQ:CREE) stock price has declined by approximately 40% year to date. Lower gross margin, doubts regarding the company’s capability to sustain its growth in the long term, and rising competition from bigger players such as General Electric (GE) are some of the key factors contributing to the negative sentiment around Cree’s stock. Our price estimate of $58 for Cree is at a 40% premium to the current market price of $41. Product innovation in the last few quarters has opened new applications and improved LED returns, in turn driving additional demand for Cree’s products. The continued growth momentum, combined with a strong balance sheet, gives Cree the flexibility to respond to new opportunities in the market. LED penetration is expected to increase in the future, and being one of the leading global LED manufacturers, Cree will benefit from the trend, in our view.
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    Amazon's CEO Believes In India's Growth Story
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  • tags: AMZN BABA EBAY
  • Amazon ‘s (NASDAQ:AMZN) CEO Jeff Bezos was in headlines due to his recent visit to India, and the decision to move ahead with $2 billion of investment in Amazon’s operations in the country. THis prompts us to wonder:  Was this a significant visit?  And can India become integral to Amazon’s future growth? One thing is certain:  Amazon’s management is showing a strong belief in India’s growth story. The country’s GDP growth could get back on track this year and recent developments suggest that there is a lot of interest from investors in e-commerce companies. To put things in perspective, Amazon’s 2013 revenues stood at little under $75 billion and the company enabled $1 billion of gross merchandise volume in India where it operates a marketplaces model. Therefore, actual revenues from India would have stood below $100 million assuming a take rate similar to that of eBay (NASDAQ:EBAY). Thus, we estimate that India accounts for less than 1% of Amazon’s business, even if we assume that its marketplaces model in India has much higher margins that its inventory-based model in the U.S. and other countries. However, we believe that Indian e-commerce market will grow multi-fold over the course of next five years and, at some point, the Indian government will allow FDI (foreign direct investment) in the country, thus allowing Amazon to stock-in inventories and sell them directly. Over time, we believe that India can be integral part of Amazon’s business. Our price estimate for Amazon stands for $348, implying a slight premium to the market price.
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    Key Growth Drivers For SanDisk's Embedded Storage Division
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  • tags: SNDK AAPL SSNLF MU
  • SanDisk (NASDAQ:SNDK) is one of the largest manufacturer of NAND flash products, which are used as embedded storage in smartphones, tablets and other consumer electronic devices. Embedded storage products (not including embedded solid-state drives) generated more than a quarter of SanDisk’s overall revenues of $6.2 billion in 2013. According to SanDisk’s estimates, its total addressable market (TAM) for smartphone, tablet and other portable device storage is expected to grow from over $12 billion in 2013 to nearly $18 billion by 2020. Below we take a look at the products included in this division and key trends affecting growth.
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    American Eagle Outfitters: Why Omni-Channel Was An Inevitable Move
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  • tags: AEO ANN ARO
  • Over the past few years,  American Eagle Outfitters ‘ (NYSE:AEO) direct-to-consumer business (which mainly includes e-commerce) has grown rapidly, driven by the increasing popularity of online shopping and proliferation of smartphones and tablets. From $307 million in 2008, the retailer’s direct revenues increased to $467 million in 2012. Even as the company struggled during fiscal 2013 through a tough retail environment, its e-commerce revenues increased by 13% to $527 million. So far in fiscal 2014, American Eagle has failed to recover from its slump and hasn’t reported its online growth. However, we believe that a steady rise in its e-commerce revenues has continued this year, given the industry-wide gradual shift towards online shopping. Despite this growth, e-commerce hasn’t turned into a big business for the company, which has been the case with other retailers as well. In response, the U.S. apparel industry is gradually shifting towards omni-channel retailing, which refers to providing a seamless shopping experience across stores and the online channel. This is becoming an inevitable move for U.S. apparel retailers, including American Eagle, which is working hard to develop its omni-channel platform and has shown significant progress so far. Our price estimate for American Eagle Outfitters stands at $13.45, implying a discount of about 10% to the market price.
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    Alibaba Hands Out Generous Fees To Investment Banks Involved In Its IPO
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  • tags: C CS DB GS JPM MS
  • Given the size of  Alibaba’s (NYSE:BABA) long-awaited IPO, the banks and brokerages that worked in it no doubt expected handsome fee revenue from the Chinese e-commerce giant in return for their services. But when the better-than-expected market response to the offering made it the world’s largest IPO, the company was happy to announce an additional incentive fee of $50 million for its lead bankers – bringing the total fees to an unprecedented $300 million. Given that the IPO raised $25 billion, this represents total fees of 1.2% of the offering size. To put things in perspective,  Facebook (NASDAQ:FB) handed out $175 million in fees for its $16-billion IPO, or a fee of 1.1% (see Banks Earn Nice Facebook Fees Despite Shares Trading Lower Post IPO ). Equity underwriting fees as a percentage of deal size generally falls with an increase in the value of the deal, which is why Alibaba’s  compensation package is a windfall for the banks. Notably, Alibaba chose a different approach for splitting the fees, rather than pursuing the usual practice of giving each bank a pre-determined proportion of the fee pool. It gave each of the five lead bankers —  Morgan Stanley (NYSE:MS),  Credit Suisse (NYSE:CS)  Deutsche Bank (NYSE:DB),  JPMorgan (NYSE:JPM) and  Goldman Sachs (NYSE:GS) — a 15.7% share of the $250-million base fee, followed by a 7.9% share to  Citigroup (NYSE:C). The remaining 13.6% was shared by 28 lower-tier underwriters. The $50-million incentive fee was shared only by the six main banks in proportion to their involvement in the deal.
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    Coca-Cola's Carbonates Offer Growth Despite Unfavorable Market Trends
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  • tags: KO PEP DPS
  • Carbonated soft drinks (CSD) have declined for nine straight years in the U.S. as consumers continue to restrict calorie consumption and switch to more natural means of quenching thirst. This category forms around 43% of the country’s liquid refreshment beverage market by our estimates, and is mature, with Coca-Cola, PepsiCo and Dr. Pepper accounting for almost 90% of the industry-wide volumes. With more and more consumers choosing to avoid sugary soft drinks, the leader of this market,  The Coca-Cola Company (NYSE:KO), also witnessed a 2.2% fall in CSD volumes in the U.S. last year. Coca-Cola derives close to 20% of its sales from the domestic market, and with volume growth in core carbonates remaining flat to negative in recent years, the beverage maker has looked to further expand into emerging markets and invest in growing beverage segments such as bottled water, ready-to-drink tea, sports and energy drinks. However, defying current market trends, Coca-Cola’s CSD portfolio in the U.S. could be headed for growth, not only in terms of margins, but also volume-wise. See our full analysis for The  Coca-Cola Company Coca-Cola’s stock has risen by only a modest 3% so far this year, reflecting how the investors believe that the company could continue to report stable but only slight organic growth. The company has locked in its share in the fast growing energy drinks market, by buying a 16.7% stake in Monster Beverages, and in the at-home beverage market, by raising its stake to 16% in Keurig Green Mountain. These equity investments will ensure steady income growth, even if Coca-Cola’s own beverage operations fail to grow at expected levels. But the company seems to have found a way to sustain growth in its core carbonates business in the U.S. as well, banking on new launches, higher marketing expenditure, and by using innovative means to re-establish customer bonds. Can Coca-Cola manage to squeeze-out growth from the ailing CSD market in the U.S.? We give reasons why we think the beverage giant might just be headed in the right direction. Volumes Grow On The Back Of Share-A-Coke Campaign Coca-Cola has looked to spur sales of its most popular and namesake cola drink Coca-Cola and its low calorie versions through experiential marketing, which aims at creating an emotional connect with customers. According to the chief marketing and commercial officer at Coca-Cola, Joseph Tripodi, the company spends over $4 billion on marketing around the world. Coca-Cola spent $3.3 billion on advertisements in 2013, representing 7% of its net sales, more than the $2.4 billion spent by chief rival PepsiCo, only 3.6% of its net sales. But the world’s leading beverage company and already one of the most recognizable and valued brands doesn’t plan to stop here. In February, Coca-Cola announced its plans to save an incremental $1 billion in productivity by 2016, which would be redirected to media investments. In line with this productivity savings plan, the company plans to save $550-$660 million this year. Coca-Cola launched the “Share a Coke” campaign in the U.S. this year, and has seen a rise in U.S. soft drink volumes since. The company labeled Coca-Cola, Coke Zero and Diet Coke bottles with common names of individuals, hoping for customers to buy these personalized bottles and cans and then promote this activity later on through social media. By forming an emotional connect with customers and leveraging present day trend of self expression on social platforms, Coca-Cola managed to grow U.S. CSD volumes and sales by 0.4% and 2.5% year-over-year in the twelve weeks through August, while both PepsiCo and Dr. Pepper Snapple witnessed declines in both volumes and revenues. Coca-Cola is rolling out its Share a Coke campaign in over 80 markets this year, and could very well extract growth in the CSD category, and that too in the ailing cola segment. The drink Coca-Cola, which generated close to $11 billion in revenues last year, grew by 1% last quarter. The flagship drink could end the year with positive volume growth in the U.S., reversing the 0.5% volume decline of last year. Small-Sized Packages Back Health Initiatives And Margin Growth Apart from a possible rise in volumes, Coca-Cola now aims to derive higher profitability by leveraging consumer health concerns that have for long subdued CSD consumption levels. Coca-Cola, alongside PepsiCo and Dr. Pepper, announced its aim of reducing calorie consumption through soft drink offerings by 20% by 2025 in the U.S. These companies plan to achieve this through promotion of low-calorie substitutes and smaller packs, which provide lower cumulative calories in one go. Fighting alongside health activists could help these beverage makers not only to spur positive consumer perception but also expand margins, as smaller packs are relatively more profitable. Over three-fifths of the 1% volume growth for the brand Coca-Cola in Q2 was bolstered by double-digit percent increases in smaller packages, including 7.5-ounce mini cans and 16-ounce immediate consumption packages. Demand for small-sized offerings has risen, despite the mini cans containing the same calorie count per ounce as the regular 20-ounce bottles, as customers look for lesser cumulative calorie consumption. According to Euromonitor, while sales in the overall U.S. CSD market remained flat last year, mini can sales rose 3%. The smaller 7.5-ounce mini cans have higher pricing per ounce, as compared to the 20- and 24-ounce packages, thereby boosting net pricing for companies. Fueled by growth in small-sized packages, Coca-Cola’s net pricing in the sparkling category grew 3% in North America in the second quarter. Owing to the higher unit prices of smaller quantity cans, margins for Coca-Cola could also expand going forward. Beverage makers will aim to attract impulse buyers with their mini cans due to their lower prices and fewer cumulative calories, adding incremental volumes and also simultaneously boosting margins as these mini cans have higher price-per-ounce. New Product Launches Could Attract Customer Traffic Much hype already surrounds the launch of the naturally-sweetened Coca-Cola Life in the U.S. this year. The stevia-sweetened drink enters the U.S., Mexico and the U.K. this year, after boosting volume growth in Argentina and Chile last year. Apart from a potential winner in the ailing low-calorie soda segment, Coca-Cola could also have another sugary soda hit in the making. The beverage giant brought back its popular citrus flavored drink Surge, heeding to continual demand by consumers on online portals, this month. Surge was launched on Amazon.com, selling at $14, plus shipping, for 12 packs of 16-ounce cans. The initial demand for Surge remained high, with the drink temporarily selling-out twice on September 15. Gauging the encouraging consumer response to Surge, Coca-Cola might even launch the drink in retail channels in the future, which would then bring the drink in direct competition with PepsiCo’s flagship drink Mountain Dew. With dollar sales of  nearly $668 million in measured convenience store channels in the U.S. last year, Mountain Dew was the highest-selling CSD, beating even the popular cola-flavored drinks Coca-Cola and Pepsi. Surge was debuted in 1996, but was pulled after sales didn’t catch-up, and the drink failed to compete with Mountain Dew. However, with initial online sales reflecting strong demand, Coca-Cola might once again launch Surge in retail stores, adding another option in the CSD category, which has been ailing amid health concerns and lack of alternatives. Due to expected volume growth on increased marketing initiatives and new product launches, in both diet and full-calorie segments, and margin expansion owing to higher sales of smaller packages, Coca-Cola’s CSD portfolio could be headed for growth in the U.S. We currently estimate gross margins for Coca-Cola’s entire CSD portfolio to remain relatively flat through the end of our forecast period. However, if the figure gradually rises to 64%, there could be a 3% upside to our current price estimate for Coca-Cola. We estimate a $41.86 price for Coca-Cola, which is roughly in line with the current market price. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Impact Of Changing Dining Preferences In The U.S. On Chipotle Mexican Grill
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  • tags: CMG MCD SBUX BKW
  • According to the  NPD ’s foodservice market research, the restaurant industry has been negatively impacted by the changing dining habits in the U.S., primarily driven by changing economic and cultural conditions. Quick Service Restaurants (QSR) have been witnessing sluggish growth for the past 18 months, due to many factors such as rising commodity costs, entry of many new competitors and declining customer traffic growth. According to the report, the reason for the declining customer traffic is the widening income gap between the high-income groups and middle-class groups in the U.S. The income split is affecting the customer count in the QSRs such as  McDonald’s Corporation (NYSE:MCD), Yum! Brands &  Burger King (NYSE: BKW). According to the report, the customer traffic growth in QSRs was considerably flat during the year ending June 2014, whereas the visits to fine dining restaurants rose 3% during the same period. Fine dining restaurants have an average customer spend of $40 and QSRs report an average check of $5. A decrease in low-income customers, who prefer going to low-cost fast food restaurants, is affecting the revenue growth of the QSRs. Moreover, customer traffic in the fine dining restaurants is not enough to make up for the declining traffic count. As a result, these restaurant chains are depending on middle-class groups to fill the void. Source: NPD report Fast Casual Segment To Benefit the Most As per the chart, the segment that benefits the most with the changing dining habits is the one with the average check of $10-$20, or what is called as the fast-casual segment, which includes companies such as Chipotle Mexican Grill (NYSE:CMG) and Panera Bread. This segment accounts for 16% of the total customer traffic share and has had a consistent growth in customer traffic for the past 5 years. The segment is witnessing consistent increases in its customer base, and the only segment with a greater share of customer traffic, QSRs, is facing decline in customer base. Fast casual restaurant is a relatively fresh and rapidly growing concept, positioned somewhere between fast food restaurants and casual dining restaurants. Technically, being the hybrid of the two concepts, they provide counter service and offer more customized, freshly prepared and high quality food than traditional QSRs, all in an upscaled and inviting ambiance. However, they also have minimum table service but the typical cost per meal ranges from $8 to $15. Fast casual restaurants most often does not have drive-thru outlets. Brands such as  Chipotle Mexican Grill (NYSE:CMG), Panera Bread, Qdoba Mexican Grill and Baja Fresh are considered as the top restaurants in this category. We have a $628 price estimate for Chipotle, which is about 5% lower than the current market price. See Our Complete Analysis For Chipotle Mexican Grill Has Chipotle Mexican Grill Made The Most Of It? Chipotle Mexican Grill, which has an average check of $13-$15, has been an impressive performer over the past few years, with increase in average check and rise in customer count. With excellent revenue growth, increase in customer count and stable margins, Chipotle has established its brand in the industry. Chipotle’s shares are up 55% over the past 12 months and 37% up since the start of 2014. Sustained Growth In Comparable Store Sales According to  Technomic’s 2014 Top 500 chain restaurant report, sales for fast casual chains  grew by 11% and store count by 8% in 2013. Although, in 2013, Chipotle generated $3.2 billion in revenues, which in comparison to McDonald’s revenues seems to be a much smaller figure, the revenue growth has been consistent at around 20% for Chipotle for 5 years now. Chipotle’s net revenues rose by a whopping 75% over the last 3 years. Chipotle’s revenue for the second quarter of the fiscal 2014 rose to $1.05 billion, up 28.6% year-over-year, primarily driven by an increase of 17.3% in the comparable restaurant sales. Strong comparable sales has been the highlight of the company and it believes that its extraordinary service and exceptional dining experience in addition to unique food culture hold the key for its improved comparable store sales. Additionally, the rising health concern among the people of the U.S. is one of the major reasons that fast casual restaurants are witnessing more traffic every quarter. The company’s policy of ‘food with integrity’, where it focuses on serving naturally raised meat and  fresh ingredients, have struck a chord with consumers and is forcing other restaurant chains to remodel their strategy and supply chain in order to respond to this newly created demand. As a result, people with higher disposable income are inclined more towards quality and hygienic food. Customers Not Dissuaded By Menu Price Hike According to Morgan Stanley research report, Chipotle’s stores have witnessed more than a 6% increase in customer usage, the highest in the industry, over the last eight years. Chipotle initially decided to raise its menu prices in 2013, but refrained from doing so and deferred the move to 2014. After ensuring that the QSRs have raised their prices, due to the rising commodity costs, Chipotle raised the prices of its steak burritos by 4%-6%, or 32-48 cents in the second quarter, whereas the overall menu prices went up by 6.5% on average. Many feared that the price hike would affect the company’s customer traffic, but it had minimal impact on them. People are willing to pay 4-5% extra for hygienic and better quality food. This led to an increase in the average spend per customer visit. The correct timing and method of price hikes, innovative new menu additions and strong marketing has helped the company in stealing market share from QSR brands. Considering the above facts, it hardly leaves any doubt that the fast casual leader has made the most of the situation and has a further growth potential. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Marvel Characters In Disney's Infinity 2.0 Will Aid The Interactive Media Revenue Growth
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  • tags: DIS ATVI
  • Disney (NYSE:DIS) released Infinity 2.0 on September 23 priced at $74.99 for starter pack and $13.99 – $34.99 for additional characters. The first version of Infinity was released in August last year and the game has seen tremendous success since. It was the 10th best-selling new physical game at retail in the U.S. last year. The first edition of the game has generated over $500 million from the sale of more than 3 million starter packs and the second version may repeat the success as it will now feature Marvel’s superheroes for the first time. Disney Infinity is part of the interactive media division, which is involved in developing and distributing video games and related content.  The division has been struggling in the past few years due to the poor performance of its releases. However, Infinity’s positive trend might help Disney to turnaround the unit which, until recently, has been posting losses. The interactive media division generated revenues of $1.18 billion in 2013. The estimated segment EBITDA margin of 15% translates into EBITDA of $177 million, representing a little over 1% of Disney’s overall EBITDA for 2013. Understand How a Company’s Products Impact its Stock Price at Trefis
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    Anheuser-Busch InBev: Headwinds In Russia To Lower Europe Volumes
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  • tags: BUD DEO TAP SBMRY KO PEP
  • Anheuser-Busch InBev (NYSE:BUD) has looked to draw growth through mergers and acquisitions such as Grupo Modelo last year, Oriental Brewery this year and a possible SABMiller deal. But what about organic growth? Taking aside possible M&A activities, the company has tapped into emerging markets in South America and Asia and also expanded margins through economies of scale and optimization of operations. However, mature beer markets in the developed world pose a threat to Anheuser’s growth. Beer operations in North America (U.S. and Canada) constitute over one-third of the valuation for the world’s largest brewery, according to our estimates. As consumers ditch beer for other alcoholic beverages such as spirits, ciders and wine, and with a gradual shift away from a massive beer-drinking culture in the developed markets, due to growing health and wealth concerns, Anheuser’s beer volume growth might be limited in the coming future in North America . The North American beer industry witnessed a 6% drop in volumes between 2009-2013, with the exception of a slight rise in 2012. Europe is another important market for the brewery, constituting 12% of the net revenues last year. Russia is the largest market for Anheuser-Busch InBev’s in the European zone, constituting over 24% of the volumes for this division and around 3% of Anheuser’s net volumes. Due to geopolitical tensions in the country invoking negative consumer sentiment, spending in general and on beer could decline. In addition, although markets such as U.K., Germany and Belgium are slowly recovering after the double dip recession, seeing how per capita consumption is already relatively high in Europe, growth in these markets for Anheuser could be limited. Europe forms less than 6% of Anheuser’s valuation by our estimates, as we estimate sluggish beer performance in the continent going forward. We have a  $113 price estimate for Anheuser-Busch InBev, which is roughly 3% above the current market price. See Our Complete Analysis For Anheuser-Busch InBev Russia Beer Volumes To Remain Weak For Anheuser-Busch The Russian economy has been struggling lately amid geopolitical issues with Ukraine. The U.S. and the European Union issued sanctions against Russia for supporting separatist rebels in Ukraine, an accusation denied by Russia. Due to the continual weakening of domestic demand and high levels of inflation, and with the Western countries looking to tighten restrictions on Russia’s financial, defense and energy sectors, the International Monetary Fund lowered its outlook on the country’s GDP growth rate to 0.2% this year and 1% in 2015, down from the previously estimated growth rates of 1.3% and 2.3% in 2014 and 2015 respectively. Lower consumer spending due to negative sentiment is expected to hamper sales of beer in the Russian market and consequently for AB InBev. After declining 8% in 2013, beer volumes in Russia are expected to fall by a mid-single-digit percent in 2014, according to Carlsberg, a leading brewery. Russia volumes for Anheuser fell 10% in the first half of 2014, after declining 14% last year. Ukraine is also a top ten market for Anheuser and is expected to witness a considerable volume decline this year owing to the geopolitical tensions. With almost one-third of Anheuser’s Europe volumes vulnerable to political impacts, we forecast the brewer’s volumes to remain slightly negative through the end of the decade. Despite rebounding disposable incomes, Western Europe might not be able to offset this expected decline due to health and wellness concerns and relatively high per capita consumption. Beer Was Already Declining In Russia Prior To The Crimea Crisis Beer decline in Eastern Europe started before the Russia-Ukraine political blowout. In 2012, reclassification of beer from foodstuff to alcohol in Russia resulted in some trading restrictions, prohibitions on selling beer between 11:00 pm and 8:00 am, and in public locations, and advertisements, thereby reducing volume sales of beer. In addition, higher taxes on beer also raised product prices, causing subdued consumer demand. Beer excise rate increased six times between 2009-2014, from $0.09 per liter to $0.55 per liter. In addition, the government plans to increase taxes on beer progressively between 2012-2015. Higher taxes will prompt further price rises and could dissuade consumers, who are already reeling under a weak economy, from beer consumption, going forward. Despite our current estimate of low volume sales in Europe, higher marketing expenditure and strong brand recognition could spur volume growth in parts of Western Europe. AB InBev has a strong foothold in Europe, holding a massive 53% share in Belgium, and 17.2% and 8.8% volume shares in the U.K. and Germany respectively, owing to popular brands such as Budweiser, Hoegaarden and Beck’s. AB InBev’s Jupiler leads the Belgian beer market and is also the official sponsor of Belgian national football team. On the other hand, Chernigivske is the best-selling beer brand in Ukraine and also the sponsor of the Ukrainian national football team. In addition, the beer brand Hasseröder also gained exposure in Germany by leveraging its sponsorship of the 2010 FIFA World Cup. The brewer attracted customers in Europe during the FIFA World Cup due to football related sponsorships, which resulted in 9.3%, 3.2% and 13.5% volume growths in Belgium, Germany and the U.K. respectively, in Q2 2014. Strong brand awareness as a result of higher investments in marketing and advertising during global events could spur beer volumes for Anheuser in Western Europe in the coming future. If the brewer’s Europe volumes in the long term rise to 5.5 million liters, still less than 2011 levels but more than the figure of 4.8 billion liters last year, and EBITDA margins remain flat, there could be a 3% upside to our current price estimate for AB InBev. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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    Q3 Results At RBS To Benefit From $1.3 Billion Provision Release
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  • tags: RBS BCS CFG
  • Nearly six years after it was pulled from the brink by the British government,  The Royal Bank of Scotland Group (NYSE:RBS) seems to have finally turned the corner. While the global banking group has yet to recover fully from the impact of the economic downturn of 2008, with the U.K. government still holding an 81% stake, the bank has worked extremely hard over the years to streamline its operations and improve efficiency. And with economic conditions in Europe returning to normal, RBS’s business model is well poised to churn out steady profits. Going by RBS’s performance figures for the first half of the year as well as the bank’s preliminary update about Q3 results released on Tuesday, September 30, it appears that the bank’s poor profitability may be a thing of the past. A key factor behind this is improving credit conditions in the region, which have helped the bank dip into the huge loan reserves it has created over the years. Notably, RBS will release £800 million ($1.3 billion) in provisions in Q3 – significantly higher than the £93 million ($150 million) in loan recoveries for Q2. Coupled with the absence of any one-time impairment costs, this should help RBS post one of its best quarterly performances since the economic downturn of 2008.
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    Time Warner Price Estimate Revised To $80 Given The Split From Time Inc.
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  • tags: TWX TWC NWSA
  • Time Warner (NYSE:TWX) completed the separation of its publishing business, Time Inc., at the end of the second quarter this year and we have updated our model to reflect the impact of the split. We have estimated the revenues for the first two quarters of 2014 to be around $1.5 billion and have forecast zero income from this business in the coming years. We will be completely removing this segment from our model after Time Warner releases the annual filings for 2014 with details of balance sheet items and the cash flows. We have revised our price estimate from $83 to $79 for Time Warner. Time Warner has been shrinking dramatically over the past decade with the exit of Warner Music, AOL, Time Warner Cable (NYSE:TWC) and now Time Inc. We believe that the split of publishing business is a step in the right direction, as this will allow Time Warner to focus purely on media content and keep itself away from the troubled print media industry. The company’s decision to exit publishing was partly driven by the challenges faced by the publishing industry, which is seeing continuous declines in advertising as well as subscription revenues given the growth in digital media. Time Inc. generated revenues of $3.34 billion in 2013. The estimated EBITDA margin of 18% for publishing segment translates into EBITDA of $607 million, representing 7% of Time Warner’s overall EBITDA for 2013. The publishing business contributed close to 3% to Time Warner’s value before the split, according to our estimates.
    KMP Logo
    Further Delays In The Approval of Kinder Morgan's Trans Mountain Expansion Project Can Hurt Company's Profitability
  • by , 2 days ago
  • tags: KMP
  • Kinder Morgan Energy Partners’ (NYSE:KMP) Trans Mountain Pipeline Expansion Project plans to twin the the pipeline that carries crude oil from the Alberta oil sands to tankers in Burrard Inlet, British Columbia. This is the only pipeline from Alberta to the West Coast providing access for oil sands production to reach markets outside North America. The expansion will triple the carrying capacity of the pipeline from 300,000 barrels of oil equivalent per day(boe/d) to 900,000. This has become a concern for environmentalists: in 2007, Kinder Morgan operated the pipeline that burst in Burnaby, British Columbia, spilling a large amount of oil into Burrard inlet, and a smaller spill happened in January, 2012 at the company’s Abbotsford facility in the Sumas Mountains. Trefis has a  price estimate of $83 for KMP, which is about 10% below the current market price. See Our Complete Analysis For Kinder Morgan Energy Partners Approval Delayed Canadian regulators have delayed the date for the review for approvals of the Trans Mountain Expansion by seven months, pushing the date back to January, 2016. The project has come in for a lot of criticism, with more than 70% of Vancouver’s residents opposed to the expansion, according to a poll. This makes the proposal a touchy subject, especially with the Federal elections coming up in 2015. Another issue concerns Aboriginal Rights: even though the proposed expansion is still pending approval from Canada’s National Energy Board, many Aboriginal community members feel that the board has gone beyond its rights and considered reviewing the project without their approval. The city of Burnaby has flat out refused cooperation with Kinder Morgan, banning engineers or other specialists hired by the company onto city property. This has prevented the company from being able to carry out several studies required for the expansion application. Financial Impact Taking into consideration all of the above points, it appears that the Trans Mountain expansion project may be pushed back beyond its initial target date of 2017. However, 2018 or 2019 might not be out of the question given there are several factors that could work in Kinder Morgan’s favor. Even though the population in British Columbia is against the pipeline expansion, the company has some strong allies in the Canadian oil and gas producers. The absence of a pipeline that can be reliably used to transport oil across the West Coast means that there is a huge discount applied to their production, in turn impacting their profitability. It is estimated that the Canadian Government might be losing as much as $8 billion a year in taxes in the absence of this pipeline. As far the company is concerned, this project represents just under one-third, or $5.4B, of its current $17.0B capex budget. Kinder Morgan believes that this project can deliver a steady stream of future cash flows. As the image below taken from a company presentation makes clear, the company’s targeted 10% annual dividend growth rate presupposes $5.2 billion in annual spending on the Trans Mountain pipeline. Any further delays in this project might impact the company’s profitability significantly. Considering the economics of oil transportation, it is possible that project can triple Kinder Morgan’s revenues from the Canadian crude transportation segment. Midstream assets work on long-term contracts and generate stable cash flows derived from fee-based revenues. Pipelines are usually low-risk assets as they are not extremely sensitive to the prices of the commodities being transported. Transportation contracts are generally based on volumes and fluctuations in the price of commodity do not impact the contract prices directly. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    PM Logo
    How Is Philip Morris Doing In Russia?
  • by , 2 days ago
  • tags: PM
  • Russia is an important market for cigarette companies. The cigarette market in Russia is estimated to be worth $20 billion. About 40% of the population there smokes, and the average smoker there smokes around 2700 cigarettes a year. Unlike the U.S., where the average smoker used to be at these levels in 1990, the market for cigarettes in Russia is shrinking much at a much slower pace. Russian leaders have also decided to significantly lower import duties on cigarettes by the year 2017. We have written earlier on the regulatory challenges faced by Philip Morris (NYSE: PM) in Russia.(See  Philip Morris Earnings Preview ) In this article we review some of those regulatory hurdles and take stock of Philip Morris’ current standing in Russia. See Our Full Analysis For Philip Morris Review Of Regulatory Challenges For Tobacco Majors In Russia Last year, Philip Morris’ sales volume in Russia declined by almost 7% as a result of the implementation of excise tax hikes and other anti-tobacco measures. Specific excise tax on cigarettes was increased by more than 40% y-o-y last year. Apart from this, a new anti-tobacco bill that was signed into law on February 25, 2013, also came into effect on June 1, 2013. This anti-tobacco law aims to reduce annual smoking-related casualties in Russia by half over a decade by restricting smoking in public areas and the marketing and sale of cigarettes. It also includes provisions for implementing a minimum price on cigarettes starting 2014 and banning tobacco sales at street kiosks. As a result of these measures, the size of the cigarette market in Russia is estimated to have further decreased by 8.5% in the first half of 2014. Philip Morris has also increased the price of its cigarette packs by four Rubles a pack across its portfolio. Accounting for reduced consumption due to this price increase, it expects the market size reduction for the year 2014 to be in the 9-11% range. The silver lining  for the company is that its market share has increased across all price categories. Its overall market share increased by 0.9 percentage points over the first quarter to end at 26.8% in the second quarter. Morris’ Strategic Investment Bears Fruit In the face of the decreasing demand for cigarettes, the market leaders in the industry had chosen to try a bit of forward vertical integration. Philip Morris and its rival Japan Tobacco had each picked up a 20% stake in the large Russian cigarette distributor Megapolis in December 2013. Japan Tobacco, with its signature brand Winston, has a 36% share of the Russian cigarette market, roughly 10 percentage points more than Philip Morris. It also has four factories in Russia, as opposed to Philip Morris’ two. Megapolis has a near monopoly on the Russian branded cigarette market, having delivered 260 billion cigarettes in 2012. Its also the exclusive distributor for Japan Tobacco, Philip Morris and Imperial Tobacco in Russia. The investment in its major distributor could have had a hand to play in Philip Morris enhancing its market share last quarter. Philip Morris had agreed to pay up to an additional $100 million based on Megapolis’ performance in increasing sales. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap |  More Trefis Research
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    Can GE Continue To Grow Its Oil & Gas Business?
  • by , 2 days ago
  • tags: GE
  • GE ‘s (NYSE:GE) oil & gas business has grown at strong rates over the last many years through strategic acquisitions and organic growth. The industrial conglomerate currently is one of the largest suppliers of oil and gas drilling equipment with leading position in many segments such as subsea and turbomachinery solutions. During 2009-2013, revenues from GE’s oil & gas segment increased at a compounded annual growth rate of nearly 15%, from $9.7 billion in 2009 to $17 billion in 2013. Profits from this segment also rose steadily during this period, from $1.5 billion in 2009 to $2.2 billion in 2013. But with global crude oil prices expected to remain stable over the next few years with rising oil production from the U.S., can GE continue to grow its oil & gas business at such strong rates? We figure with global demand for oil & gas continuing to grow, especially from the developing countries, oil & gas production will likely also rise in coming years. Accordingly, GE anticipates oil & gas industry’s total spending to rise by 6% annually through 2017. In our view, this rising industry spending will grow GE’s oil & gas results, as the company holds a leading position as an equipment supplier. GE’s simplification initiative, which is lowering costs, will ensure that this revenue growth translates into strong profit growth. So overall, we figure GE will likely be able to grow its oil & gas business in coming years. GE’s oil & gas segment will constitute about 12% of its overall revenues in 2014. We currently have  a stock price estimate of $28.33 for GE, around 10% ahead of its current market price. See our complete analysis of GE here GE Has Built A Formidable Position As An Oil & Gas Equipment Supplier Over the last two decades, GE acquired many oil & gas equipment suppliers. The company started with the acquisition of NuovoPignone, which enabled the industrial conglomerate to establish a foothold in the turbomachinery space. Since then, GE has undertaken strategic acquisitions to build leading positions in specific areas. Today, GE is a leading player in the subsea segment, in which capital expenditure from the oil & gas industry is expected to grow by 9% annually through 2017. The acquisitions of Wellstream in 2011 and of vectogray before that enabled GE to build its product portfolio in the subsea space. Similarly, the acquisitions of Well Support, Sondex, Hydril and Lufkin helped GE build its formidable position as a drilling and surface equipment supplier. Several other acquisitions have allowed GE to establish itself in the downstream segment as well. Overall, today GE is one of the largest suppliers of oil & gas products, which have applications across the entire value chain from drilling to downstream processing by refineries. In addition, GE has an extensive support network comprising of 40 service centers in the world’s main oil and gas extraction regions, including the Middle East and Latin America. We figure this is crucial for growth as buyers prefer service centers in the vicinity of their operations as this helps minimize their equipment downtime. Strong Long Term Growth Fundamentals In the first half of 2014, GE’s oil & gas revenues have risen by 23% annually, and the segment’s margins have expanded by 60 basis points. For the full year 2014, the company anticipates its oil & gas revenues and profits to be higher than those in 2013. In our opinion, the long term growth potential for GE’s oil & gas business is solid. With a rising global population, demand for energy is bound to grow. We figure that a significant portion of this growing energy demand will have to be fueled by oil & gas. This will compel oil & gas extraction, transportation and and refining companies to invest more capital, thereby growing the market for GE’s oil & gas equipment products. Currently, large developing countries like China and India consume significantly less oil per person, compared to developed countries. China and India currently consume 7 and 3 barrels per day (bbl/day) per 1000 people, respectively. The corresponding figures for Japan is 35, for Australia is 44, for the U.S. is 61 and for Canada is 64. So, as consumption of oil in developing countries rise, GE’s oil & gas business will likely grow. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
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